EIS Relief: Eligibility, Calculation, and Tax Benefits

Enterprise Investment Scheme (EIS) Relief offers tax-efficient incentives for investors supporting high-risk, early-stage companies in the UK. This government initiative encourages investment in small businesses by providing significant tax benefits.

Eligibility Criteria

To qualify for EIS Relief, both the investor and the company must meet specific conditions. Investors must be individuals, not companies, and cannot hold more than 30% of the company’s shares, voting rights, or rights to assets in the event of a winding-up. They must not be employees, although directors can qualify under certain circumstances.

The company must be unquoted, meaning it cannot be listed on a recognized stock exchange. It must have a permanent establishment in the UK and not be in financial difficulty. The company’s gross assets must not exceed £15 million before the share issue and £16 million immediately after. Additionally, it must employ fewer than 250 full-time equivalent staff at the time of investment. The business must operate in a qualifying trade, excluding sectors such as coal production, steel production, and financial services. Funds raised must be directed toward growth and development.

Calculating EIS Relief

EIS Relief provides income tax relief of up to 30% on investments, with a maximum limit of £1 million per tax year. This relief can be applied to the investor’s income tax liability for the year of investment, with the option to carry back unused relief to the prior tax year.

For capital gains tax (CGT), investors can defer an existing gain by investing in an EIS-qualifying company. If shares are held for at least three years, gains on disposal may be exempt from CGT, provided the conditions are met.

Loss relief allows investors to offset investment losses against their income tax liability for the year of the loss or the preceding year. The loss is calculated as the difference between disposal proceeds and the cost of shares, minus any income tax relief already claimed.

Claiming EIS Relief on Tax Returns

To claim EIS Relief, investors must obtain the EIS3 certificate from the company, which confirms the investment qualifies for relief. This document details the investment amount and share issue date.

Investors should complete their self-assessment tax return accurately, entering the investment amount and unique reference number from the EIS3 certificate. For those carrying back relief to a previous tax year, a clear election specifying the tax year is required.